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ECONOMY

Germany passes €480-billion bailout

Germany's €480-billion ($650-billion) bank bailout flew through parliament in an historic fast-track vote on Friday to restore shattered confidence in the crisis-ridden financial sector.

Published: 17 October 2008 13:53 CEST
Germany passes €480-billion bailout
The Bundestag debating the bailout plan. Photo: DPA

The rescue package, the biggest ever in German post-war history, sailed through the lower house of parliament, or Bundestag, where 476 parliamentarians voted in favour, 99 against and one abstained.

But MPs from all parties made clear the package should not be interpreted as a free pass for the country’s beleaguered banking sector.

“We are doing our part to get out of this crisis and expect the financial market players to do theirs,” said Volker Kauder, head of the parliamentary group of the conservative Christian Democrats.

It was then unanimously passed in the early afternoon in the upper house, or Bundesrat, which represents Germany’s 16 federal states. There had been however been some grumbling from regional premiers earlier over the cost of the bailout, since they would have to shoulder 35 percent of the burden.

The plan, unveiled at the beginning of the week, includes up to €80 billion in fresh capital for banks and €400 billion in guarantees in order to jumpstart stalled lending between banks.

The package will now be signed by President Horst Köhler later Friday so that it can come into effect on Monday. In the lower house, the ruling conservative CDU/CSU and the Social Democrat SPD parties both voted in favour, as did the liberal FDP. The Greens and the far-left Die Linke party voted against.

Economy Minister Michael Glos said the move was crucial not just for the banks, but primarily for “the good of citizens and the economy.”

“Everything must be done to restore confidence” in the financial sector, Glos said.

But Green parliamentary chief Renate Künast branded the proposals as a blank cheque for banks, who could still not be held responsible to taxpayers. Berlin has been at pains to reject such charges, stressing that, in return for aid, the state will take stakes in the banks and demand influence in company decisions, the payment of dividends and even bankers’ salaries.

So far, no bank has signalled its intention to apply for aid under the rescue package.

A financial source told AFP that Germany’s biggest bank, Deutsche Bank, would not seek state aid.

“Deutsche Bank’s capital structure is very strong, as a result there is no need to seek state aid,” the source said.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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